Question

1. The price of a preferred stock issued by GS is selling for $125 ($100 par value). What is the cost of this preferred stock?

a) 12.5%

b) 25%

c) 8%

c) 10%

d) 5%

2. A 7-year bond with 9% coupon (paid semi-annually) is currently selling for $1,052.8156. What is the required return of this bond?

a) 4.5%

b) 4%

c) 8%

d) 9%

3. A new project will be financed by $40 million in debts and $60 million in common equities. What is the weight of the common equity?

a) 1

b) 0.6

c) 1.5

d) 0.4

Answer 1

1) Cost of preferred equity 12.5%

2)

=RATE(nper,pmt,pv,fv)

=RATE(7*2,9%/2*1000,-1052.8156,1000)*2

=8%

3)

b) 0.6